Canada | Canadian not for profit incorporation.

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating a federal not for profit corporation or an Ontario not for profit corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly if you need a business lawyer.

For the purposes of this blog, I’ll be discussing federal not for profit corporations.  These corporations are created and governed by the Canada Corporations Act.  That Act does not call them not for profit corporations; rather they are called “Corporations Without Share Capital”.  This means that they do not have shareholders, but rather members.  An important difference between for profit and not for profit corporations is that the latter cannot distribute dividends (from profits) to members.  Rather, that money can only be put towards the objects or purposes for which the not for profit corporation was created.

For Profit Corporations (Generally)
Now, I’ve previously blogged extensively about corporations generally, but some things are worth repeating here.  First, corporations are separate legal persons.  They have their own assets.  They have their own rights and obligations.  They can sue and be sued.  They are separate from their owners (called shareholders) and managers (directors, officers, employees).  Now, corporations are great business vehicles because they afford limited liability protection to the shareholders: the personal assets of the shareholders cannot generally be touched if the corporation has to pay for something.  The corporation is created by legislation through the filing of Articles of Incorporation.  You should check out my previous blog posts about corporations, shares, articles, roles and responsibilities, etc.

Canadian Not-For-Profit Corporation
Part II of the Act deals with Corporations Without Share Capital.  Section 154(1) of the Act says that the Minister of Industry MAY issue letters patent to any persons who apply for the creation of a corporation without share capital.  There are a few important caveats here.  First, there must always be at least 3 incorporators and directors of the not for profit corporation.  Second, the letters patent is simply a government document – much like the Articles of Incorporation of a for-profit business.  Third, the corporation must carry on a purpose without monetary gain to its members.  So it must have a purpose that is national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional, or sporting in nature.

Application of Letters Patent
To apply for letters patent, you need to submit:

1. Cover Letter
2. Application
3. By-Laws
4. Statutory Declaration
5. Filing fee of $200

Each will be discussed in turn.

Cover Letter
The cover letter should be addressed to:

Corporations Canada
Industry Canada
9th Floor, Jean Edmonds Towers South
365 Laurier Avenue West
Ottawa, Ontario, K1A 0C8

The letter should indicate who you are, what your contact information is and what documents are enclosed.  You will also need to enclose a cheque in the amount of $200 payable to the “Receiver General of Canada”.  If you are requesting them to do a NUANS name search report, then you’ll also need to enclose or add another $15 to cover the cost of that search.

Application
The application must indicate:

• The proposed name of the not for profit corporation (so you’ll need to provide a recent NUANS name search report for the proposed name which is less than 90 days old – or you can simply pay $15 and get the government to do it for you)
• Who the incorporators are (there must be at least 3 of them)
• The objects of the corporation

There are also additional clauses which can be included in the letters patent dealing with the director’s ability to borrow money, issue debt, and pass by laws as the directors see fit.

The application must be signed in duplicate and the originals are to sent to the government.

The By-Laws
Two copies of the by-laws of the proposed corporation must be provided with the application for incorporation. If you need help drafting these by-laws, give me a shout.

Statutory Declaration
One of the incorporators must swear (before a commissioner for taking oaths) that the contents of the application are true.

Processing Time
Processing times vary, depending on whether you’ve provided the government will all required documentation and there are no problems with your proposed name.  It can be as quick as 3 days for expedited processing, or 5 days for standard processing.

Extra-Provincial Licensing
If you have a federal not for profit corporation, you’ll need to obtain provincial licenses for those provinces which you operate in.  If you operate in Ontario, then there is no fee.  But this varies from one province to the next (e.g. Alberta charges $175 for an extra provincial license).

In a future blog, I’ll get into maintenance fees and taxes with respect to federal not for profit corporations (i.e. corporations without share capital).

For more information about incorporating a not for profit corporation in Canada, check out the government’s website here.

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Shareholder Agreement Template

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholders agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!).  If you want to get in touch with me directly, feel free to email me directly to discuss all your shareholder agreements needs!

So this is a follow up to my recent post about Shareholder Agreements in Ontario.  In this blog, I’ll be talking about some of the nuances of a typical shareholders agreement.

Shares, Shareholders, and Shareholders Agreements
So lets start off with the basics, shall we?  Corporations are separate legal persons.  They are separate from their owners (called shareholders) and managers (typically, the officers, directors, and employees).  They have their own rights, duties, etc.

Now, whoever owns the shares of the corporation owns the corporation.  These persons – who can be individuals, corporations, partnerships, etc. – are called shareholders.  There may be different types of shareholders, depending on how the corporation was initially structured.  For example, if the corporation wanted SOME people to control it, then those people would have VOTING shares.  Other people who owned part of the corporation but did not have control over it would have NON-VOTING shares.  The VOTING shares are used at shareholder meetings to vote in a board of directors (who appoint the officers) to manage the corporation.  Those with NON-VOTING shares don’t get to vote anyone in.  If you want to know more about the rights, privileges, conditions, etc. of shares, you can skim through my other blogs about corporate shares here and classes and series of shares here.

Now, upon dissolution, the assets of the corporation will be liquidated and paid out to creditors and shareholders.  Certain shareholders may have priority over other shareholders.

There may also be restrictions on a shareholder’s ability to transfer the shares.  For example, the consent of the board of directors or the shareholders may be required to do so.  There may be other kinds of restrictions or obligations you want to attach to the shares.  These things (among other things) can be taken care of through a SHAREHOLDERS AGREEMENT.

When are they used?
Shareholders Agreements are typically used when parties are either first starting a company and want to outline their respective rights, privileges, duties, etc. or when parties are admitting new shareholders to the corporation.  The latter is typically the case when venture capitalists (financiers) want to help get the corporation’s business up and running.  The purpose of the shareholders’ agreement is to govern the relationship between the shareholders.  Without one, there can be many disputes that arise and which get resolved in a costly and time consuming manner: namely, court!  So having certainty over many of the important issues found in a  shareholders agreement CAN actually help to avoid or mitigate future disputes since everyone will (or at least “should”) know what they’re getting into.

They are private and comprehensive
Remember: a shareholders agreement is generally a private agreement which is not in the public realm (unless it is disclosed as part of a lawsuit).  This can be contrasted with the articles of incorporation (the document which creates the corporation) which is available to the public and which may also deal with certain things that the shareholders agreement deals with (e.g. restrictions on share transfer) but which is not as comprehensive.  Therefore, for the sake of confidentiality and comprehensiveness, it is recommended to have a shareholders agreement and not simply rely on articles of incorporation!

Shareholders Agreement Typical Structure
So what can a typical shareholders agreement deal with?  Well, a typical shareholders agreement can deal with things like:

1. Control and Management
2. Transferring Shares
3. Valuing Shares
4. Non-Compete and Non-Solicitation
5. Confidentiality
6. Resolving Disputes
7. General Terms

I’ve previously blogged about these things, so I would encourage you to keep reading to educate yourself!

Additional Resources to Learn About Shareholders:

1. Online School – Learn about shareholders and corporations in legal and business classes.
2. Shareholders – Definition

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

As a follow up to a previous blog I wrote about limited partners losing their limited liability status, in this blog, I’ll be discussing this matter in more detail.  So we start off with the idea that, in Ontario, a general partnership does not confer limited liability status on the partners.  That means they will be personally liable for the debts and obligations of the partnership.  Now, if that general partnership register as a limited partnership and complies with the Limited Partnerships Act, then the limited partners’ liability will be limited while the general partners’ liability will be unlimited.  There is an exception to this rule, however: if a limited partners “takes part in the control of the business” of the limited partnership, then they shall be fixed with the same UNLIMITED LIABILITY as a general partner: s. 13(1).  Keep in mind that a limited partner, simply by exercising their other rights and powers granted to them under the Act (as discussed in my previous blog post), will not assume the liability of a general partner.  Such liability only attaches to them exercising control beyond the scope of what they are allowed to under the Act.

So, given this, the question comes up: what if the general partner of the limited partnership is a corporation and the director or officer of the corporation is the limited partner?   So, in this example, the limited partner is an individual (e.g. John Doe) and is also the director or officer (e.g. President) of the general partner.  If the individual acts on behalf of the general partner, will he or she have personal UNLIMITED LIABILITY for the limited partnership?

This is a tricky situation.  The limited partner is essentially trying to go around the rules of the Limited Partnerships Act by being a controlling the general partner.  Now since the general partner is a corporation, and because corporations are assumed to be separate legal entities, the limited partner would think that he or she is personally NOT the general partner and therefore not subject to unlimited personal liability…that’s the idea, at least…  Well, lets see what the courts have said, shall we?

In Laplante v. R., [1995] 1 C.T.C. 2647, the Federal Tax Court of Canada had to deal with an interesting situation that arose in the context of tax law.  A taxpayer claimed certain losses arising from a partnership.  The partnership had incurred certain losses and the taxpayer wanted to take advantage of those losses.  The Minister of National Revenue, however, claimed that the partnership was actually a limited partnership (not general partnership).  As such, the Minister argued that certain tax-rules (known as ‘at risk’ rules – which I’ve previously blogged about) limited the amount of losses which that taxpayer could deduct.  So the issue for court to decide was whether the taxpayer was a general partner or limited partner during the relevant time period (i.e. when the partnership incurred the losses)?  Ultimately, the Court agreed with the tax payer: he was not a limited partner for 2 reasons.  First, a general partnership existed but had not been registered with the government (recall: to have a limited partnership, you must file a declaration with the provincial government).  Since a limited partnership is not recognized at common law, and because nothing had been filed during the relevant years, there was no limited partnership.

The second reason the taxpayer was not a limited partner was because he had taken part in the control of the business (which would make a limited partner have unlimited liability like a general partner).  Specifically, the taxpayer had been a director and officer of the general partner,had authority to effect banking transactions, and had rendered personal services as a sole proprietor in respect of the partnership.  The tax court cited Zivot as authority for this proposition and concluded:

23          The evidence in this case indicated the appellant was the principal if not the sole person in control of the operation. This is also indicated in the partial agreed statement of facts, supra, even to the extent that the appellant was operating as a sole proprietor. Surely this is indicative of control.

So based on these two reasons, the Court allowed the taxpayer’s appeal and sent the matter back to the Minister of National Revenue for reconsideration as to the taxpayer’s tax liability (in light of the fact that he was NOT a limited partner).

So what’s the moral of this story?  Well, this is another example – in addition to Zivot – that shows that a limited partner who is a director or officer of a general partner may have unlimited liability because they take part in controlling the business of the limited partnership.

So what about contracting out of this position?  In other words, could a limited partner use contracts to have control over the business of the limited partnership but still maintain limited liability?  A 1992 British Columbia Court of Appeal case  offered limited support for the idea that a party could do so: Nordile Holdings Ltd. v. Breckenridge (1992), 66 B.C.L.R. (2d) 183 (B.C. C.A.).  But the better view is that it is unsettled law.  That’s what the Saskatchewan Court of Queen’s Bench said in Stillwater Forest Inc. v. Clearwater Forest Products Ltd. Partnership 2000 SKQB 110:

Loss of Limited Liability by SGGF

7          The plaintiffs allege that SGGF took part in the control of the business of the Limited Partnership and that pursuant to s. 64 of the Act it is therefore liable for the debts and obligations of the Limited Partnership. Section 64 states:

8          On the nonsuit, SGGF argues that even if the plaintiffs are successful in establishing a factual basis for a claim under s. 64 of the Act (which, of course, it does not accept), any potential liability of SGGF is completely answered by the contractual provisions of the agreements. According to SGGF, the parties contracted out of any liability that might arise under s. 64 of the Act. It argues that the specific contractual terms of each of the agreements unequivocally preclude it from having any liability for the general partner’s or the Limited Partnership’s obligations thereunder and it therefore submits that the claim against SGGF in relation to such liability should be dismissed.

9          There are no Saskatchewan cases interpreting s. 64 of the Act and only two Canadian cases that deal with similar statutory provisions in other provinces: Haughton Graphic (Graphics) Ltd. v. Zivot (1986), 33 B.L.R. 125 (Ont. H.C.) and Nordile Holdings Ltd. v. Breckenridge (1992), 66 B.C.L.R. (2d) 183 (B.C. C.A.). As to its argument based on contract, SGGF relies on the chamber judge’s decision in Nordile which supports its position that a party may contract out of liability that would otherwise arise under limited partnership legislation. It is noted however, that although the Court of Appeal upheld the chamber judge’s conclusion in Nordile, the appeal court found it unnecessary to deal with the contract issue. There is therefore very limited authority to the effect that a limited partner may contract out of the statutory consequences of participating in the control of a limited partnership’s business.

10          I am satisfied that the plaintiffs have led sufficient evidence which, if uncontradicted, could reasonably support a finding that SGGF participated in the control of the Limited Partnership. As the contractual argument that SGGF relies on is far from being well settled law; and, given the paucity of case law interpreting s. 64 of the Act generally or more particularly, its effect, if any, on contractual provisions acknowledging limited liability, I am not prepared at this early stage of the proceedings to preclude the plaintiffs from pursuing this aspect of their claim. The nonsuit will therefore not be granted with respect to the plaintiffs’ claim that pursuant to s. 64 of the Act, SGGF is liable as a general partner of Clearwater.

So because the idea of whether you can contract out of the clear language of the Ontario Limited Partnerships Act has not been resolved, it is best to comply with the act and not try to get around it through contracts.  It’s unsettled law and you could find yourself in hot water!

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Contractor Agreement Template – $97

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to becoming an independent contractor, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Ontario business lawyers in this regard.  You can contact me directly at michael@carabashlaw.com.

So you need an contractor agreement, but don’t have hundreds or thousands of dollars to spend hiring a lawyer to draft it from scratch?  Well, you’ve got two options: (1) you can purchase a do-it-yourself online kit for only $97 or (2) you can do the first option but have a lawyer review it after you’re done (just make a FREE and anonymous post).

So let’s discuss the two options, shall we?

Contractor Agreement Template: Purchase a Legal Form + Video Guide for $97

First thing’s first: why $97?  Well, considering that we’re providing you with a legal form that would normally cost hundreds or more (indeed, I’ve personally charged clients over $1,500 for an independent contractor agreement) plus all the free additional information you’re getting (a video tutorial and 2 written guides), it’s well worth it.

The stuff that’s on the internet selling for $10 or $20 or even $40 is crap compared to this.  How can I say that?  Well, for starters, the other contractor agreement templates may not be prepared by an Ontario lawyer. Keep in mind that laws change from one jurisdiction to the next. A B.C. lawyer has no business drafting or advising on an Ontario independent contractor agreement. Next, the other stuff on the internet does not come with any guidance. I’ve personally put together video tutorials (typically about 10 minutes each) showing you an example of how to fill out the legal form. I’ve also put together a primer (DL Guide #1)that discusses the various issues you should be familiar with.  I’ve charged clients thousands of dollars to research and educate them on these types of issues.  YOU GET IT FOR FREE!  Finally, if you’re worried about whether your legal form is valid and enforceable, I’ve put together another FREE primer (DL Guide #2) entitled “Is My Legal Form Valid and Enforceable?”  It takes you through the various issues you should be familiar with when completing and entering into your legal form so as to minimize future challenges.  The reality is that any agreement – whether a LAWYER HAS PREPARED IT OR NOT – can be challenged.  There’s nothing stopping anyone from alleging that the agreement is bad, unfair, incomplete, etc.  It will always be up to a judge to make the final call.  But going to court is both costly and time-consuming.  So it’s simply best to try to mitigate those challenges from happening to begin with.

The second option will give you additional peace of mind if you need it: simply purchase a contractor agreement for $97 and make a post to have a lawyer quote you on how much it would cost to review.

Now one final thing: when you’re looking to purchase a contractor agreement, there will be two kinds: (1) with a Statement of Work and (2) without a Statement of Work.  So what’s a statement of work and which contractor agreement template is best for you?  The “No Statement of Work” means that the services to be performed by the Independent Contractor are dealt with WITHIN the actual agreement and not in a Schedule (attached and incorporated into the agreement as a “Statement of Work”).   If there is a Statement of Work, then it will allow you to enter things like: pay, time, location of work, etc. (basically the details of the services to be performed).

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to forming a Delaware LLC, you should seek professional assistance.  If you would like me to coordinate with U.S. counsel to form a Delaware LLC for you, you can contact me directly.

So why am I, an Ontario lawyer, talking about Delaware LLCs in this blog?  Well, for the simple reason that Canadians often use Delaware and other state LLCs as part of structuring their business.  LLCs are interesting business structures with definite advantages that should be explored.  So that’s why I’m devoting this blog to talking about them generally.  Now lets start off with the basics, shall we?

LLC?
LLC stands for “Limited Liability Company”.  A Delaware LLC is a Limited Liability Company that is formed and governed in the good state of Delaware under the Limited Liability Company Act.  That Act was enacted in 1992.

Why is an LLC so special?
An LLC is a hybrid entity: part partnership, part corporation.  It takes the best and worse of both worlds.  As a partnership, it can be disregarded for tax purposes.  This means it’s a flow through entity.  So the members (not shareholders) who own the units of the LLC receive the profits and losses and are taxed accordingly.  This differs from a corporation, where the corporation is a separate legal entity (it gets taxed) and then the shareholders receive dividends (they get taxed again!).  So, as a partnership-like structure, it has tax advantages.

But it also conveys limited liability status on its members and managers: the Act provides that, unless an operating agreement of the LLC says otherwise, the members and managers of the LLC have limited liability to 3rd parties for the debts and obligations of the LLC:

§ 18-303. Liability to 3rd parties.

(a) Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.

(b) Notwithstanding the provisions of subsection (a) of this section, under a limited liability company agreement or under another agreement, a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company.

Operating Agreement
Unless the LLC has an operating agreement that says otherwise, the LLC is governed by the Act.  The Act has various default rules.  This is akin to an Ontario partnership.  It will cover things such as:

• Formation and Purpose
• Term
• Capital Contributions
• Allocations and Distributions
• Company Interests (transfer, redemptions, etc.)
• Members (e.g. admission, removal, resignation)
• Managers
• Administrative Matters (e.g. accounting, tax, etc.)
• Termination and Dissolution
• General Matters

Ease of Creation
Delaware LLCs are easily formed.  They are not incorporated (because they are not corporations), but “formed”.  The Certificate of Formation must be filed, a registered office and agent in Delaware is required, and an Operating Agreement must be entered into (either oral or written).  Interestingly, the government provides a lot of flexibility with what people are required to do to maintain Delaware LLCs: there is no obligation to maintain books and records in Delaware, nor is the LLC required to do business in Delaware!

Costs
Filing a Delaware LLC can cost between USD$200-$600, depending on who does it and what you get (e.g. By-Laws, Unit Certificates, Seal, Minute Book, Operating Agreement, etc.). Part of that cost involves paying a $99 fee to have a registered agent who can accept service of documents (e.g. lawsuits) on behalf of the LLC.  You must also pay a $250 State franchise tax annually.  Operating agreements may cost anywhere from a few hundred to a few thousand dollars, depending on how complicated they are (think: more parties means longer to draft, review, and negotiate = increased costs!).  Finally, for those parties who want to have a manager of the LLC other than themselves, there are service providers who will do that.

So that’s it for now about Delaware LLCs…remember: if you need an Ontario lawyer to help you coordinate with U.S. counsel to form a Delaware LLC as part of your business structure, you can contact me directly.

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to Non-Compete or Non-Solicitation clauses, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you.  If you’re looking for Non-Compete and Non-Solicitation clauses within an employment or independent contractor agreement, then check out our legal forms + video guides.

So this if the first of many blog posts about non-compete and non-solicitation clauses.  Yes, I’ve previously blogged about this topic (e.g. here, here, and here).  So here, I’ll be talking about these clauses from the perspective of an employer or human resources manager.  If you’re either one of these, you absolutely need to check out our employment agreements or independent contractor agreements.

First thing’s first: do I actually need one?
Whether you need to restrict or limit an employee’s ability to do something (e.g. compete with the business, solicit clients from the business, solicit employees from the business) really depends on whether you have something worth protecting.  Do you have a legitimate interest in protecting a business idea?  If you have provided confidential information to an employee, clearly you want them signing a confidentiality agreement as part of their employment (if they are an employee) or engagement (if they are an independent contractor).  If an employee or independent contractor had access to client lists, trade secrets, pricing policies, formula, or technology that is proprietary, the last thing you want is for them to set up shop across the street or share it with anyone else.  So there has to be some type of harm or damage which could result from this employee or independent contractor doing something to you.  If there is a reasonable prospect of such harm occurring, then having a non-compete or non-solicitation agreement or clause within an agreement makes sense.

Difference between Non-Compete and Non-Solicitation Agreement
OK, so assuming you need a non-compete or non-solicit, the next question to ask is: what’s the difference? And will one of them suffice? A non-compete clause in an employment agreement or an independent contractor agreement puts limits on the person’s ability to establish their own business or work for others so as to compete with their previous employer or client.  This is a much more drastic step than a non-solicit clause.  The latter, when included in an employment agreement or an independent contractor agreement, means that the person will not solicit customers or employees of the previous employer or client.  Now, why not have both, you ask?  Well, there are a few reasons…

First, having both may dissuade a prospective employee or independent contractor from signing on from the get go.  They may feel that, if anything goes wrong and they leave, they will be unemployable.  Related to this is the morale factor: a new employee or independent contractor may feel bad because, right away, they’re threatened with sanctions if things don’t work out and they try to do something akin to what they’ll be doing for the employer.  Ouch!  Finally, having non-compete and non-solicit clauses may actually INCREASE the amount of notice (or payment in lieu thereof) an employee is entitled to at common law if the matter gets litigated: courts may increase the normal amount of notice or payment in lieu thereof because it would take the employee longer to find suitable work with the existence of non-competes and non-solicit clauses.

So, assuming you as an employer still want to have a non-compete and/or non-solicitation clause just for the sake of having them, the next question becomes: do you need both or will one suffice?

Non-Compete vs. Non-Solicit in Employment Context
Interestingly, the case of Lyons v. Multari (2000) 3 C.C.E.L. (3d) 34 becomes relevant here.  This is a leading case by the Ontario Court of Appeal concerning an employee dentist who was sued for allegedly breaching a non-compete clause in an employment contract.  The issue before the court was whether that restrictive covenant was enforceable.  The facts of that case are straightforward.  One dentist was a principal of the business (i.e. the employer).  Another dentist was an associate (i.e. employee).  The two dentists signed a short-hand note that limited the associate’s ability to practice dentistry if he chose to leave.  The entire non-compete clause said: “Protective Covenant.  3 yrs. – 5 mi.”  After 17 months of working, the associate dentist left and opened up his practice – which competed with his employer’s business and was 3.7 miles away.  The employer sued for breach of contract.  The Ontario Court of Appeal disagreed, holding that the non-compete clause was unenforceable.

So how did the Court of Appeal end up there?  Well, it started off by saying that all restrictive covenants go against public policy (free trade, etc.) and are therefore VOID.  The only exception to this general rule is if the restraint is reasonable in the interests of the parties and also reasonable in the public interest. So there are a few factors which a court should consider to answer these questions: (1) whether the employer has a proprietary interest entitled to protection, (2) whether the temporal or spatial features of the clause are too broad, and (3) whether the covenant is unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employee.

So with this test and factors in hand, the Ontario Court of Appeal held the following:

• The employer had NO proprietary interest in other dentists who referred clients (so those referring dentists were up for grabs);
• The employer benefited from the relationship with the employee;
• The role played by the employee was not special; and
• A non-solicitation clause would have sufficed (a non-compete clause was too drastic).

So based on all of these things, the Court of Appeal concluded:

48 For all of these reasons, I conclude that Dr. Lyons’ non-competition clause is unenforceable. His legitimate interest in protecting his own referring dentists and patients could have been protected by a non-solicitation clause. An established professional person or firm — be it in the field of dentistry, medicine, engineering, architecture, law or other professions — will constantly seek to recruit entry level associates to the practice. Such recruitment is good for the established person or firm and for the young associate.

So what does that tell prospective employers and employees?  Well, basically, you can put whatever you want in an employment agreement (for show), but at the end of the day it may not be enforceable.  Asking too much and not being reasonable may defeat your restrictive covenant.  In the case above, the Court of Appeal held that a non-solicitation clause would have sufficed because a non-compete was too harsh.  Only in exceptional cases will non-compete clauses be upheld; that case was not an exceptional one.

Exceptional cases for non-competes?
So what constitutes an exceptional case for a non-compete clause, you ask?  Well, although the court in the above case didn’t get into it, there was a case in Manitoba which did try to answer that question.  In Winnipeg Livestock Sales Ltd. v. Plewman [2001] 1 W.W.R. 153, the Manitoba Court of Appeal reviewed the various Canadian authorities on the issue of “exceptional cases” and held that the following factors were relevant:

In summary, the authorities reveal that the following circumstances will generally be relevant in determining whether a case is an “exceptional” one so that a general non-competition clause will be found to be reasonable:

1. The length of service with the employer.
2. The amount of personal service to clients.
3. Whether the employee dealt with clients exclusively, or on a sustained or recurring basis.
4. Whether the knowledge about the client which the employee gained was of a confidential nature, or involved an intimate knowledge of the client’s particular needs, preferences or idiosyncrasies.
5. Whether the nature of the employee’s work meant that the employee had influence over clients in the sense that the clients relied upon the employee’s advice, or trusted the employee.
6. If competition by the employee has already occurred, whether there is evidence that clients have switched their custom to him, especially without direct solicitation.
7. The nature of the business with respect to whether personal knowledge of the clients’ confidential matters is required.
8. The nature of the business with respect to the strength of customer loyalty, how clients are “won” and kept, and whether the clientele is a recurring one.
9. The community involved and whether there were clientele yet to be exploited by anyone.

So any employer or HR manager should think long and hard about these factors if they’re concerned about the validity and enforceability of a general non-compete clause…

Now onto the next blog about non-competes and non-solicitation clauses and agreements…

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to getting, varying, or terminating child support in Ontario, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Brampton, Hamilton, and other Ontario family law lawyers registered on Dynamic Lawyers who can offer information, advice, and assistance with respect to helping you get, vary, or terminate child support.

This is the first of a series of blog posts I’ll be writing about family law in Ontario.  In this blog, I’ll be discussing something vary basic: child support obligations in Ontario.

A common question people sometimes ask: if I never get married but have a child with someone, do I still owe them child support?  Well, the Ontario Family Law Act doesn’t care if you, as the child’s father or mother, is married.  Nor does the Act care if you’re common law.  All that matters is that the payor is the child’s parent.

Basic Obligation of Parent to Pay Child Support
O.k., so when does a parent have to pay child support in Ontario?  Basically, there are two situations under s. 31(1) of the Act which require a parent to pay child support.  Here’s what that section says:

Obligation of parent to support child

31. (1) Every parent has an obligation to provide support for his or her unmarried child who is a minor or is enrolled in a full time program of education, to the extent that the parent is capable of doing so.

So by reading this section, it becomes clear: every parent has an obligation to provide support for his or her unmarried child who is (1) a minor or (2) enrolled in a full time program of education.  There is an exception to these two tests and that is set out in section 31(2), which states that the obligation under s. 31(1) does not extend to a child who is 16 years old (or older) and who has withdrawn from parental control.  What exactly is meant by “parental control” will be discussed in the next blog.

First Branch: Minor
Under the first branch, the first question to ask is: who is considered a “minor” in Ontario?  The Age of Majority and Accountability Act states that: “Every person attains the age of majority and ceases to be a minor on attaining the age of eighteen years” [s. 1].  Remember: this liability is limited by the parent’s capability of paying child support [s. 31(1)].  This liability is further restricted if child, assuming he or she is over 16 years old, has withdrawn from parental control [s. 31(2)].

Second Branch: Attending School Full Time
Even if a parent’s child is over the age of 16 (indeed, there doesn’t appear to be any upward limit here), a parent may still be liable to pay child support if the child is “an unmarried child who…is enrolled in a full time program of education”.  This is the second branch.  Once again: this liability is limited by the parent’s capability of paying child support [s. 31(1)].  This liability is further restricted if child, assuming he or she is over 16 years old, has withdrawn from parental control [s. 31(2)].

Caselaw
So how have Ontario courts interpreted these sections of the Act dealing with the obligation of a parent to support a child?

In Giess v. Upper (1996), 28 R.F.L. (4th) 46, Mendes da Costa J. of the Ontario Court of Justice – General Division wrote the following about the support obligation created by s. 31(1) of the Act in the context of that case:

16 The support obligation created by section 31(1) is two-fold. First, it applies to an “unmarried child who is a minor”. While the child, Elizabeth, is unmarried, she was born on October 22nd, 1977, and is now 19 years of age. As she is no longer a “minor”, she does not qualify for support under this limb of the subsection. Secondly, the support obligation extends to a child who is “enrolled in a full time program of education”. With regard to this extension of the support obligation, the word “child” is used as a term of relationship, and does not imply any limitation as to age.

In that case, the 19 year old child was found to be enrolled in a full time program of education. Mendes da Costa J. explained that the word “enrolled” meant that the child’s participation had to be meaningful: “it must be of such a nature and equality as to be consistent with the program’s purposes and objectives”. The father was found to have an obligation to provide child support under the second branch of s. 31(1) of the Act – subject to whether the child had “withdrawn from parental control”.

In McCann v McCann, the Ontario Court of Justice – General Division rejected the argument that if a child stopped being enrolled in a full-time program of education and ceased to be eligible for any child support, then their eligibility forever ceased and could not be resurrected by a subsequent enrollment in school in a full-time program of education. As per Aston J.:

24 Christopher McCann is now an “unmarried child” who is enrolled in a full-time program of education. I cannot conceive of any reason in logic or equity why it should matter that he has not been continuously enrolled in a full-time program of education since attaining the age of 18. The word “continuously” does not appear in the wording of subsection 31(1) of the Family Law Act.

25 There is a discretion in the court to deny support to an adult child who has left a full-time program of education and then resumed such a program but a gap in an ongoing program of education does not, in my view, automatically disqualify an applicant child from seeking support.

In McNulty v. McNulty, [2006] W.D.F.L. 434, Howden J. of the Ontario Superior Court of Justice observed:

10 The obligation to pay support for a child has not been applied by the court on a standard of perfection (or near-perfection) in attendance or in achievement by marks. The requirement of section 31(1), for the child who has reached 18 years of age and is no longer a minor, is that that “child” be enrolled in a full-time program. That has been applied to mean participation in the educational program in which he/she is enrolled in a meaningful way.  Giess v. Upper, (1996) 28 R.F.L. (4th) 460 (Ont. Gen Div).  In Copeland v. Copeland, (Ont. Gen. Div. (unreported Dec. 9/92, noted in Ontario Family Law Practice 2006, by C. Perkins, D. Steinberg and E. Lonkingly (sp?), p. 696), it was determined that a court should not impose a standard of devotion, priority and effort on a child as a condition of continuing a claim for support. In another case, that of a daughter over 18 years of age who completed high school but did not attend school for a year, the court held that the parent’s support obligation had not ended. Huneault J. held:

11 The purpose of the obligation to provide support extending into a child’s adult years is to reinforce parental responsibility for the education of their children beyond the age of majority. Reading this section as a whole, the legislative intent of parental support is to provide and continue to provide support for a child who is pursuing an educational program and remains dependant on the parent while he/she has not completed their education…

…

13 …The requirement of enrolment in a full-time course of education does not contemplate mere enrolment of the student to operate as a continuing trigger for support payments without some participation by the “child” in the program. Barring special circumstances (such as Tiara’s pregnancy, giving birth and maternal duties in her newborn’s first year), the “child” of 18 years or more owes a duty of due diligence to participate meaningfully in the educational program (interpreted in a contextual understanding, and purposive way) under section 31 of the Act.  Figueiredo v. Figueiredo (1991), 33 R.F.L. (3d) 72 (Ont. Gen. Div.), following Giess v. Upper.

Finally, in Simpson v. Hart, 1998 CarswellOnt 5163, Dunbar J. of the Ontario Court of Justice – General Division noted that: “The law is clear that a child who is independent may re-qualify for support from a parent by recommencing school and thus becoming dependent once more on the parents”.

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to getting a child custody order in Ontario, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Brampton, Hamilton, and other Ontario family law lawyers registered on Dynamic Lawyers who can offer information, advice, and assistance with respect to helping you get child custody.

It’s a tough situation: you want to split up from your common law or married spouse and take your child with you.  But you don’t have the permission of your spouse.  Now they’re saying that they’ll call the police and report an abduction if you suddenly leave with your child.  Is that true?  What are your options?

Starting Position: Parents have equal rights
Well, you need to start off by looking at the Children’s Law Reform Act.  Section 20(1) says:

Except as otherwise provided in this Part, the father and the mother of a child are equally entitled to custody of the child.

So if a spouse is planning to just get up and leave with their child, they will be infringing on the other spouse’s equal entitlement to custody.  Here, “custody” means having legal care and control of the child.   The spouse that take their child could face family law and criminal sanctions (e.g. charged with abduction).  There are defences which they could raise, however, which are outlined in the Criminal Code provisions repeated below.

Court Order or Separation Agreement
So how do you get around the “equal rights” starting position?  Well, s. 20(7) of that Act says:

Any entitlement to custody or access or incidents of custody under this section is subject to alteration by an order of the court or by separation agreement.

So, if there is a valid separation agreement or court order dealing with custody and access, then a spouse would be entitled to take their child as per the terms of that agreement or order.

Separation Agreement
The terms of a valid separation agreement can deal with custody and access issues of children.  For example, a term could say that the husband will have custody of the children and the wife will have access to include overnight, weekend, and extended holiday visits.  Alternatively, a term could say that the husband and wife will have joint custody of the children (e.g. the children will reside with the husband but will be in the custody of the wife as follows….).  The terms of your separation agreement to satisfy both parties’ interests in light of the best interests of the children.

Court Order
If you don’t have or can’t get a separation agreement with your spouse that addresses custody and access issues, you will need to apply to the court (using Form 8).  The person making the application is called the “Applicant” and your spouse will be the “Respondent”.  As per the Superior Court of Justice – Family Court – Fees Regulation, there is no filing fee on an application seeking custody, access, or support made under the Children’s Law Reform Act.  There also doesn’t appear to be any fees payable if the proceeding is in the Ontario Court of Justice.  For more information about family law procedures in the Ontario Court of Justice, check out this Guide by the Ministry of the Attorney General.  For more information about family law procedures in the Superior Court of Justice, check out this Guide by the Ministry of the Attorney General.

Criminal Sanctions
Without a separation agreement or court order to the contrary, a spouse can be charged with abduction by simply taking their children and leaving the other spouse.  Here are the relevant sections of the Criminal Code dealing with the offence of abduction (very serious stuff) and the possible defences.  Remember: if you are contemplating getting a separation agreement or applying to the court for custody and access, you can make a post on Dynamic Lawyers (100% free and anonymous) where family law lawyers can advise and represent you:

Abduction

283. (1) Every one who, being the parent, guardian or person having the lawful care or charge of a person under the age of fourteen years, takes, entices away, conceals, detains, receives or harbours that person, whether or not there is a custody order in relation to that person made by a court anywhere in Canada, with intent to deprive a parent or guardian, or any other person who has the lawful care or charge of that person, of the possession of that person, is guilty of

(a) an indictable offence and is liable to imprisonment for a term not exceeding ten years; or

(b) an offence punishable on summary conviction.

(2) No proceedings may be commenced under subsection (1) without the consent of the Attorney General or counsel instructed by him for that purpose.

284. No one shall be found guilty of an offence under sections 281 to 283 if he establishes that the taking, enticing away, concealing, detaining, receiving or harbouring of any young person was done with the consent of the parent, guardian or other person having the lawful possession, care or charge of that young person.

285. No one shall be found guilty of an offence under sections 280 to 283 if the court is satisfied that the taking, enticing away, concealing, detaining, receiving or harbouring of any young person was necessary to protect the young person from danger of imminent harm or if the person charged with the offence was escaping from danger of imminent harm.

286. In proceedings in respect of an offence under sections 280 to 283, it is not a defence to any charge that a young person consented to or suggested any conduct of the accused.

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to a mistake in a Will,  you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you prepare and draft a Will.

A Will is only valid if the Testator knew and approved its content.  If words have been mistakenly inserted into a Will without such knowledge or approval, then a court may strike out those specific passages or phrases.  In Barylak v. Figol, 9 E.T.R. (2d) 305, for example, a residuary clause had been inserted by mistake.  That clause gave the residue of the deceased’s estate to a fund to create a scholarship for needy students of Ukrainian origin. The Testator never gave his solicitor instructions to include that offending residuary clause. There was no evidence that the Will was ever sent to the Testator prior to its execution for review by him. Even if it had been, there was no evidence as to whether the Testator’s command of written English was such that he would have fully understood it. Also, there was no evidence that a true copy of the executed Will was left with the testator or that a copy was sent to him. Overall, the Ontario Court of Justice (General Division) held that the Testator knew nothing about the residuary clause and that it did not reflect his expression. Accordingly, the Court deleted the clause from his Will based on the doctrine of mistake.

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice as a dependent, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you in this regard.

What if you have been inadequately provided for in someone’s Will?  Well, if you’re a dependent in Ontario, you might have some legislative recourse.

Section 58(1) of the Succession Law Reform Act allows a deceased’s dependents to apply to the court for support where the deceased (either through a Will or absent one) has not made adequate provision for their proper support.  A dependent is defined under s. 57 of that Act to include your spouse, former spouse, common-law spouse, parent, grandparent, child, grandchild, brother, and sister. A dependant may have to prove that they are a dependent and entitled to financial support under s. 58(1) in court. If the court decides that the person is a dependant and that person can show a need for financial support, then it may order that a certain amount of money be paid to them out of the estate.

If you think that you may be entitled to more from an estate than the amount provided for in a Will, or if you need to determine the rights of others when preparing your Will, consult with a lawyer (by making a post on Dynamic Lawyers).

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